AI hits high-paying IT jobs, exposing cracks in India’s growth story

Hello, this is Priyanka Salve writing from Singapore.

Welcome to the latest edition of Inside India. A one-stop-shop for the stories and developments of the world’s fastest growing large economy.

Over the past two decades, India’s IT sector has driven the consumption boom and supported India’s growth story in many ways. However, AI is forcing IT companies to shift away from mass hiring, exposing a critical gap in the lack of quality jobs that risks hindering economic growth.

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Few global events have undermined India’s legendary growth story.

Earlier this month, the IMF reaffirmed its forecast that India will remain the fastest-growing large economy in 2026, despite the Middle East conflict disrupting global supply chains.

But last week, global equity research firm Bernstein wrote an open letter to Indian Prime Minister Narendra Modi warning that the country’s jobs crisis is deepening, especially as artificial intelligence threatens quality jobs in the information technology sector.

These jobs, with relatively high wages and productivity, have spillover effects across real estate, education, and services, making white-collar employment a key pillar of the country’s economic growth.

For the past 20 years, 10 million to 15 million Indians working in the IT services and business process outsourcing industries have supported an “ambitious middle class that buys homes, flies and fuels consumption,” Bernstein said. “Gen AI is now challenging that template.”

Experts say India’s IT sector used to compete with its global peers because of its comparatively low costs and vast talent pool. But AI has tilted the equation from the previous labor arbitrage in favor of technology arbitrage. The lack of quality jobs will put stress on India’s growth story, which relies on demographic dividend and domestic consumption.

“Without job creation, India’s consumption-driven economy will find it difficult to grow, and investment demand will be constrained as the export growth-led model is in jeopardy globally,” Sushmita Sharma Deveshwar, chief India economist at Global Data TS Lombard, told CNBC.

“India has struggled to increase the share of manufacturing in the economy as it moves labor from farms to factories,” he said, adding that the AI ​​boom now poses a threat to both manufacturing and service jobs.

Nearly 45% of India’s workforce still relies on agriculture, Bernstein said, and agriculture accounts for only 15-16% of gross domestic product (GDP).

In an interview with CNBC-TV18 during the AI ​​Summit earlier this year, India’s IT Minister Ashwini Vaishnaw acknowledged that job destruction in high-tech is a “real challenge” but stressed that the solution lies in “upskilling and reskilling the workforce.” The Indian government expects AI to reinvent the country’s IT sector.

“Not all jobs are at risk of being replaced by AI,” said Alexandra Herman Prasad, chief economist at Oxford Economics, but added that the big problem is that much of the workforce lacks the skills to move into complementary roles that would benefit from AI. “Poor overall educational outcomes” were a key factor, he added.

But even as AI-driven reskilling accelerates amid an uncertain outlook, IT employment is already declining.

IT companies I recognize announced Wednesday that it has launched a new program for its AI transformation, “Project Leap,” which will involve staff retraining as well as layoffs. According to a report in Indian newspaper Mint, up to 4,000 people could be laid off as part of the AI ​​push.

“There is a general streamlining of job cuts,” said Suchobon Nayak, senior research analyst at Mumbai-based Anand Rati Institutional Equities, adding that net employment by India’s top five IT companies fell by about 7,000 jobs in the fiscal year ended March 2026.

According to local media reports, India’s largest IT company Tata Consultancy Serviceswhich laid off 12,000 people last July, plans to hire just 25,000 new graduates this year, compared to an average of 40,000 new hires over the past three years.

Nayak said total employment at IT companies averaged about 230,000 people over the past five years, but increased by about 170,000 in the fiscal year ending March 2026.

Other players in the industry are also seeing a clear shift away from mass employment in the Indian IT industry.

Before the advent of AI, India’s relatively low-cost talent was the key to driving growth for IT companies, but now these companies are focused on improving productivity, experts said.

“FY26 saw a structural reset, with companies focusing on productivity-led growth rather than large-scale hiring,” Kapil Joshi, chief executive officer of IT staffing at Quess Corp., told CNBC. “Despite stable revenue, employee growth is flat,” he said.

Data shared by staffing agencies shows that while traditional IT roles have expanded significantly to include AI capabilities and require exposure to large-scale language models, IT companies are posting fewer entry-level job openings.

As job creation in the IT industry slows, experts are less hopeful about whether India will be able to fill the gap by creating quality jobs in other sectors.

“More than a decade of ‘Make in India’ has yet to spark a manufacturing renaissance,” Richard Rossow, senior advisor and chair of India and emerging Asian economies at policy think tank CSIS, told CNBC. Like Bernstein, Rosseau agrees that while basic agriculture remains the largest source of employment, manufacturing remains a “relatively small part of the economy.”

Experts said India’s growing gig economy mainly provides low-value jobs but will not be able to replace high-quality jobs in services and manufacturing.

Without creating new pools of quality jobs or quickly reskilling the workforce, India risks facing a weaker version of its growth story, one in which strong headline GDP masks rising unemployment.

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